“Mega–MAAA”: The Influence of Size and Momentum in 2020
Published September 10, 2020
Building on an exceptional 2019, the S&P 500 reached an all-time high on February 19, 2020. Almost exactly six months later, the S&P closed at a new all-time high. In between, however, the S&P lost 34% over 23 trading days – the fastest drawdown of that magnitude. Over the next 121 trading days following the decline, the S&P 500 rebounded 51.5% - the fastest recovery ever. Setting aside the “why” for another day, the drawdown and subsequent rebound have been record-setting, but what has been the driving force behind this rally?
In the U.S., there are four publicly-traded companies with a market cap exceeding one trillion dollars – Microsoft, Apple, Amazon and Alphabet, or “Mega-MAAA”. The influence these mega-cap companies had on the overall S&P 500 recovery was significant (Chart 1). Perhaps even more noteworthy, from the February peak to the August peak (Chart 2), the S&P 500 would have posted an almost 6% loss without these four titans.
At a glance, people might categorize these companies as “Big Tech”, but this is not quite accurate. Alphabet (Google) resides in the Communications Services sector, representing approximately 23% of the sector. Amazon can be found in Consumer Discretionary, representing roughly 24% of that sector. Only Apple and Microsoft are actually in the Technology sector. Their combined weight is 46% of the sector!
Each company’s influence on its respective sector is more significant than their impact on the S&P 500. Without Amazon’s 50%+ return, the Consumer Discretionary sector would flip from a gain to a loss in the peak-to-peak period (Chart 3). Without Apple and Microsoft, the Technology sector would have experienced a performance drop of 10% over the same period (Chart 4).
With a peak-to-peak average weighted performance of 26.65% for these four Mega-MAAA stocks (vs. -0.11% for the S&P 500) and a size advantage that requires the combined market-caps of the next 26 companies in the index to match, these companies’ influence on the broader index results is huge. Bottom line: the story of this market rebound is that these trillion dollar titans carried this rally.
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